Industrial Heat’s Motion to Dismiss Denied in Part, Granted in Part

[feedquote='E-Cat World','http://www.e-catworld.com/2016/07/20/industrial-heats-motion-to-dismiss-denied-in-part-granted-in-part/']There’s an announcement from yesterday (July 19, 2016) on the Rossi vs. Industrial Heat’s Court Docket regarding the Motion to Dismiss that Industrial Heat filed and Rossi responded to: ORDER granting in part and denying in part17 Motion to Dismiss for Failure to State a Claim. Counts II, V, VII, and VIII are DISMISSED without […][/feedquote]

So it looks like IH will have to pay up and could be looking at crippling damages in the hundreds of millions if not billions on the Fraud count; which could simply be attached to earnings from future IP and IH, Cherokee, Darden and Vaughn end up being Rossi's and Leonardo's slaves for decades. If they go bust Rossi could end up owning the whole kit and caboodle.

Quite the coup of sorts for Rossi to have the fraud element still intact. Problem now is he has to prove it, which may be difficult. But the task will be easier now as juries are notorious for defaulting to emotions, when given the choice between going by their "gut feelings", or being expected to understand complicated technical issues.

As to the contractual aspects; the same jury dynamics may help him here also, as IH could parade multiple expert witnesses for their defense, each testifying that the GPT (1 year test) was a sham and showed nothing. Proving their point with chart after chart, and reams of data and technical stuff, until the jurors eyes glaze over. Then Rossi puts on the stand his Nuclear Engineer, in his nice Italian suit , innocent appearance, shy and vulnerable demeanor (the "little guy look" ) along with the "customer", and they both keep it simple and state flatly that the 1MW was a rousing success.

Who they are they going to believe? Given the choice between going by a simple reading of the contract "both IH and Rossi agree that if the ERV says the test was good, the money is owed", or all that hard to understand stuff, they may take the easy out. Win Rossi.

Couple of dark horses here too that may devastate IH. As Dewey said, and Rossi today confirmed, the Lugano Swedes (what is it about these Swedes ) are working on replicating (again) the Hotcat. Keep in mind that Rossi (Darden too) visited them to shore up their support, and apparently Rossi came away the victor. Very possible that Rossi could have given them the final piece to the puzzle that makes his "energy catalyzer" tick, assuring their effort, and they could show up at trial with proof.

Then there is that "validation test" (IH's DD). It has always been the elephant in the room that Dewey refused to talk about, no matter how many times asked about it. As you may recall, were that test not successful...no deal. The deal went on so it was successful. That will be hard for IH to explain away.

I would think that right about NOW, IH may find it in their best interest to "leak" the ERV report, along with some other juicy findings from their investigation. If their doing so proves the GPT was a bust, possibly rigged, Rossi's whole case...both the contractual counts, and fraud disappear and IH avoids the dreaded showdown with a jury.

Those who are rushing to proclaim victory for Rossi should actually read it.

I predicted all counts would be dismissed except for Count 1. I was not as thorough as the Judge in reading the Complaint and assuming that absolutely everything in the Complaint was true if not contracted within the Complaint itself and the Exhibits. She did. (And she took pains to note that her ruling was not affirming any of those claims.) Nevertheless, I predicted partial dismissal, 7 of 8 counts, and the result was 4/8.

She kept Count 1, but ... left the door open for a dismissal later. I predicted it would be kept but that would require allegation of estoppel. She assumed estoppel from other alleged facts. She left he door open on the "six cylinder unit" issue. I suspect that there, though, estoppel might be shown, it will depend on facts not in evidence yet, such as communications between IH and Rossi.

My emphasis added.

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E. Count V: Civil Conspiracy

Here, the relevant Defendants include Cherokee, IH, IPH, Darden, and Vaughn. (See generally Compl.). Cherokee entirely owns and funds IH, one of its holding companies. (See id. ¶¶ 41–43). IPH is a wholly owned subsidiary and holding entity of IH. (See id. ¶ 51). Furthermore, Darden is the CEO of Cherokee and president of IH; and Vaughn is the manager of Cherokee and vice-president of IH. (See id. ¶¶ 9–10). Thus, while Cherokee, IH, and IPH may have separate corporate structures, it is clear they are either subsidiaries or wholly owned holding companies of each other. (See id. ¶¶ 41–51). As such, neither they, nor their individual employees — Darden and Vaughn — may be said to conspire with each other.

So, I notice that what is plainly false is assumed in order to dismiss Count V. The judge does not "know" that it is plainly false, and is here operating within a view of the facts that is entirely unembarrassed by knowledge outside the documents before her, and points of law. That same understanding is then used to allow Count VI to continue.

What we understand is that IH was not formed with funding from Cherokee, but from Darden, Vaughn, and others (such as Dewey Weaver or his own LLC). What Rossi asserts is based on his own memory from conversations in 2012, apparently. He's welcome to testify to that, but it would take additional evidence, my opinion, for this to stand. Darden and Vaughn may also testify. And there is the Agreement itself, which explicitly replaces all prior representations, which is a very common clause in an agreement, precisely and exactly to avoid situations like this. "But you said ....".

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F. Count VI: Fraud and Deceit [...]Plaintiffs further allege Defendants misrepresented to them that: (1) Cherokee and IH are the same company; (2) Cherokee entirely owns and funds IH; and (3) Cherokee guaranteed Leonardo would be paid in accordance with the License Agreement.[...]The cases cited by Defendants do not address situations, such as here, where several Defendants did not sign the contract, but nonetheless: (1) participated in fraudulently inducing Plaintiffs to sign the contract; and (2) owned or were otherwise substantially related to the Defendants who did sign the contract. (See id.). Due to the particular facts of the instant case, dismissal of the non-signing Defendants is not warranted.

As well, Defendants did not allege Statute of Frauds, i.e., a verbal promise to pay where performance is more than a year in the future. In any case, the Count has a snowball's chance in hell of surviving actual litigation, where facts must be proven, not merely alleged. At this point, and on this point, estoppel could not be alleged, there are no continued alleged actions by Cherokee signifying their particiipation. However, it's moot now.

Whether IH will appeal or not, I don't know. The ruling seems sound enough to me. Yes, some of the counts, from known facts, are preposterous, but this is not the basis for the ruling.

Some counts were allowed even where they were quite thin.

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C. Count III: Unjust Enrichment ...While causes of action may be pleaded inthe alternative, see FED. R. CIV. P. 8(d)(2), a claim of unjust enrichment may only be pleaded inthe alternative where one of the parties asserts the contract governing the dispute is invalid.

Here, Defendants assert the Second Amendment, not the entire License Agreement, is invalid. (See generally Mot.). While the Court has concluded the Second Amendment is valid based on the current record and accepting Plaintiffs’ statements as true, discovery may reveal facts indicating otherwise — i.e., that the six-cylinder unit is distinct from the E-Cat Unit. If, in fact, the Second Amendment is not valid, the License Agreement’s meaning fundamentally changes. In essence, Plaintiffs may not have a cause of action for breach-of-contract pursuant to the License Agreement if it is determined they did not fulfill conditions precedent to fulfillment of the contract. Accordingly, dismissal of Plaintiffs’ unjust enrichment claim is premature.

Let me put it this way: If the Second Amendment is not valid, Plaintiff is screwed on the $89 million payment. However, in that case, there might be an "unjust enrichment" claim, which is entirely separate from the Agreement. So, then, the litigants would examine the facts from that perspective. What "injustice? What "enrichment"? And what damages to plaintiffs?

This judge is doing her job, quite well, her reputation is deserved.

Those who are rooting for Rossi might reflect that continuing Cherokee as a defendant is providing the defense with the resources of a $2.2 billion company. However, I expect to see either an appeal on this point, at this point, or, once there is discovery and other evidence before the Court, as in the Answer to the Complaint, and the plaintiff's reply, a motion for Summary Judgment. The judge hints at Summary Judgment in one of the sections, at least.

Notice this:

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A. Count I: Breach of Contract for Non-Payment...Regarding Defendants’ “six-cylinder” argument, there is insufficient information in the record to determine whether the six-cylinder unit is simply another name for the E-Cat Unit. Accordingly, the Court will allow discovery to proceed on this matter before ruling. Thus, the Court declines to dismiss Count I.

Translation: The court might rule differently later, i.e., in Summary Judgment. However, I'd think that this would be an issue of fact, so a Jury ruling might be required. On the other hand, if the unit is actually a different unit than was contemplated in the Agreement, which might be established without controversy, Count 1 could be toast. She is only saying that if this is a difference in name only, it's not important.

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Taking these allegations as true, it is plausible Defendants’ disclosure of the E-Cat IP to Plaintiffs’ third-party competitors may have constituted trade secret misappropriation. Accordingly, dismissal of Count IV is unwarranted at this time.

This is one point where it occurs to me to disagree with the judge. A license with right to sublicense must allow disclosure of all that is necessary to make the product. There is no allegation of any specific "competitor" in the Complaint. But ... again, she is simply giving the plaintiff an opportunity to make the case. This is no guarantee that it will reach the jury. While I disagree, her ruling is certainly within reason.

The dismissed counts were dismissed "without prejudice." This means that the plaintiff is not barred from filing a new case on the points, and may even be able to file a motion to restore a Count given strong enough reason. The Plaintiff, at this point, if I am correct, may still request leave of the Court to amend the Complaint.

Thanks. If anyone wants to study the case, so far, all the major documents are hosted at https://groups.yahoo.com/neo/g…tex/files/Rossi_v_Darden/. I gave them filenames and descriptions so you can find the document you might want, in one place. (Only some early technical pages are not included, like waiver of summons, and the essence of those is easily visible in the docket (which is also linked there). To see files in that yahoogroup filespace, it might be necessary to join the list. That's free and quick; one needs a yahoo account.

I don't think IH will "deal". I think they will argue that Rossi's claims for the ecat and the megawatt plant were fraudulent to begin with because Rossi had no reason to believe that the ecat worked and because he did everything he could to defeat attempts at proper testing. Also because he rigged every demo and every test.

This would be a 300% missrate then... (4 items stay instead of 1) Nevertheless a good result for an amateur.

Actually, there were eight counts and I made a prediction on each. I was correct on 5, and incorrect on 3. That's a 62% success rate, in a situation where Motions to Dismiss face great difficulty.

Professionals will avoid making predictions on issues like this, because how the judge will take the arguments can be highly unpredictable. I understand the judge's reasoning with every count.

What caused my errors was that she actually did assume that all alleged facts were true, in full detail, whereas I knew that some were blatantly false, and that affected my judgment. Further, she hinted at the possibilities of a complete dismissal, later, after there is more in the record, which would include the clear facts that I knew.

Such as the matter of alleged Cherokee full ownership of IH. That then requires her to consider Cherokee an actor and thus responsible. Yet this is completely false and easily established as such.

A little factoid: IH is now apparently owned by IHHI (the "parent company" as stated before the Court), and ... an investor in IHHI is Ampenergo, a "missing signature" on the 2nd amendment. Is this relevant to anything? I don't know, but it does open up some possible speculations. My guess: irrelevant.

The courts response is a very good read. Clear and understandable the whole way through. She only realistically leaves open the option to reverse on 2 of the 4 surviving motions. That is just common sense given the upcoming discovery process that most likely will shed new light. But basically, the heart of the case looks as if it will remain intact, and this will go to trial, or be settled out of court.

I can not help but wonder if the court system wants this case to happen? Those guys get bored by the ho hum same-old-same-old, just like you and me. The same elements that made us shameless addicts, would appeal to them the same way I would think. Anyways, while reading this document, I just got the impression this judge assigned her best clerk to write it...maybe anticipating the buzz that will surround the trial. Who knows, it may top OJ!

Dewey, better leak that ERV report soon. You guys are going to need some help.

Its a good read and I recommend it to everyone otherwise there will be much cherry picking.

This is my personal understanding of the ruling which must be read in full on the link to gain a full understanding.

A. Count I - ALLOWED Breach of Contract for Non-PaymentRuling: Regarding Defendants’ “six-cylinder” argument, there is insufficient information in the record to determine whether the six-cylinder unit is simply another name for the E-Cat Unit. Accordingly, the Court will allow discovery to proceed on this matter before ruling. Thus, the Court declines to dismiss Count I.

B. Count II - DISMISSED: Breach of Contract for Exceeding the Scope of the LicenseThe Court agrees. A plain reading of the License Agreement reveals the agreement does not refer, even generally, to whether Plaintiffs can apply for a patent based on E-Cat IP or tell others they own E-Cat IP. C.f. Bayer Healthcare LLC v. Gen-Probe Inc., No. CIVA Case 1:16-cv-21199-CMA Document 24 Entered on FLSD Docket 07/19/2016 Page 9 of 25. 05-12084-RCL, 2006 WL 6499322, at *5–6 (D. Mass. July 26, 2006) (declining to dismiss breach-of-contract claim connected to the plaintiff’s patent infringement claim where the contract specifically limited the rights of both parties to the “patent rights or other intellectual property rights of the other party for any use or application other than those expressly and specifically granted by the Agreement.”). Accordingly, dismissal of Count II is warranted.

C. Count III - ALLOWED: Unjust EnrichmentIn essence, Plaintiffs may not have a cause of action for breach-of-contract pursuant to the License Agreement if it is determined they did not fulfill conditions precedent to fulfillment of the contract. Accordingly, dismissal of Plaintiffs’ unjust enrichment claim is premature. Until an express contract is proven, a motion to dismiss a claim for unjust enrichment on these grounds is premature.”

D. Count IV - ALLOWED: Misappropriation of Trade Secrets(1) plaintiff conferred a benefit on the defendant; (2) defendant voluntarily accepts and retains the benefit conferred; and (3) the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying the value thereof to the plaintiff.”)) Court must construe allegations in the light most favorable to Plaintiffs. A party who uses improper means to acquire a trade secret and then “disclos[es] or use ” this trade secret without the owner’s consent misappropriates the trade secret under the FUTSA. Taking these allegations as true, it is plausible Defendants’ disclosure of the E-Cat IP to Plaintiffs’ third-party competitors may have constituted trade secret misappropriation. Accordingly, dismissal of Count IV is unwarranted at this time.

E. Count V - DISMISSED: Civil ConspiracyComplaint must contain accusations which are sufficient to put the Defendants on notice as to how the actions of individual Defendants were at odds with rather than on behalf of, the corporation, to the point where the individuals’ interests can be said to be separable and distinct from the corporation’s.” (alterations added; internal citations omitted)). Accordingly, the intra-corporate conspiracy doctrine bars Count V as presently pled.

F. Count VI - ALLOWED: Fraud and DeceitReading the facts in the light most favorable to Plaintiffs, the Court finds Plaintiffs adequately plead a claim for fraudulent inducement. The cases cited by Defendants do not address situations, such as here, where several Defendants did not sign the contract, but nonetheless: (1) participated in fraudulently inducing Plaintiffs to sign the contract; and (2) owned or were otherwise substantially related to the Defendants who did sign the contract. (See id.). Due to the particular facts of the instant case, dismissal of the non-signing Defendants is not warranted.

G. Count VII - DISMISSED: Constructive and Equitable FraudA confidential or fiduciary relationship exists where “confidence is reposed by one party and a trust is accepted by the other, or where confidence has been acquired and abused.” The factual allegations do not show the parties entered into a confidential or fiduciary relationship to support a constructive or equitable fraud claim. The absence of a fiduciary or confidential relationship compels dismissal of Count VII.

H. Count VIII - DISMISSED: Patent Infringement[Filing a patent application] is not the making, using, offering to sell, selling, or importing of an invention. It is the act of approaching an agency of the government in order to obtain a limited privilege and to fulfill a public goal of making knowledge of an invention available to the public. It is not commercializing an invention, which requires introducing an invention into commerce, or making preparations to do so. ……….. Accordingly, Count VIII is dismissed.I. Grouping Defendants Together in Several Claims….(collective references to defendants and allegations of fraud did not violate Rule 9(b) where complaint alleged sufficient facts and enough specific allegations as to separate defendants). Accordingly, the Court will not dismiss any claims on this basis.

Conclusion1. Counts II, V, VII, and VIII are DISMISSED without prejudice.2. All other counts remain intact.

This must not be taken as a accurate transcript, read it for yourselves.

I don't think IH will "deal". I think they will argue that Rossi's claims for the ecat and the megawatt plant were fraudulent to begin with because Rossi had no reason to believe that the ecat worked and because he did everything he could to defeat attempts at proper testing. Also because he rigged every demo and every test.

This is what the Judge has said: "While Plaintiffs have not identified such separate damages at this stage, they have identified separate underlying facts, see supra. Furthermore, it is possible discovery will reveal separate damages for Plaintiffs’ fraud claim".

So What are the facts' Mary that you think will be 'discovered' that will form the 'material evidence' likely to persuade the court?

Oh, how embarrassing. It's in the edit menu. Edit the post, and highlight the relevant text, and then you should see the S with a horizontal line through it ("strike out") highlighted. Press that button, the strikeout should disappear.

This wasn't a bad post, though a bit thin. This is the kind of writing that will actually teach you something. I have comments on various aspects of the ruling, having studied all this extensively pre-ruling. I wonder if people want to see them here?

Oh, how embarrassing. It's in the edit menu. Edit the post, and highlight the relevant text, and then you should see the S with a horizontal line through it ("strike out") highlighted. Press that button, the strikeout should disappear.

This wasn't a bad post, though a bit thin. This is the kind of writing that will actually teach you something. I have comments on various aspects of the ruling, having studied all this extensively pre-ruling. I wonder if people want to see them here?

Frank, I am no lawyer so I don't know how proof that Rossi committed fraud will be obtained. It may be a complicated process involving expert opinion that upon reviewing the data presented to IH, it was flawed or contrived and Rossi would or should have known it was. It may take the shape of compelling Rossi to obtain an ecat test from a truly independent and truly competent organization or agency, in an effort to demonstrate whether it objectively does or does not work. And whether Rossi knew or should have known it. I hope for that. But like Sniffex in a similar situation with their suit against James Randi for defamation, Rossi would drop the suit before the test was ever done... because he knows damn well how it would come out!